BNM Keeps Rates Unchanged At Zeti’s Last Policy Meeting

Bank Negara, Malaysia’s central bank, has kept all rates the same at the last policy meeting of governor Tan Sri Zeti Akhtar Aziz last Wednesday.

The meeting was the last policy meeting of Zeti’s 16-year tenure, and the key interest rate was maintained at 3.25%, as expected, and the reserve requirement ratio that was cut in January was also kept unchanged.

“Overall investment will continue to be supported by the implementation of infrastructure development projects and capital spending in the manufacturing and services sectors,” BNM said in a statement.

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“The external sector is expected to record a modest improvement and provide additional support to the economy,” the central bank added.

In the same statement, BNM said that Malaysia will grow at a “more moderate pace” this year, after last year’s 5% expansion.

Domestic consumption will continue to support the economy, as external risks remain high as uncertainty in commodity prices and rising geopolitical risks continue.

The statutory reserve requirement ratio (SRR) was unexpectedly cut in January from 4.0% to 3.5% to boost liquidity.

According to a Singapore-based analyst at Nomura, Brian Tan, the decision last Wednesday “supports the view that while growth is slowing, things are still under control”.

The outcome of the meeting was expected as all 11 economists in a Reuters poll had predicted that BNM would keep the overnight policy rate steady.

BNM last revised the rate in July 2014, when it was raised by 25 basis points from 3.0% to curb rising household debt.

The approaching change

After 16 years at the helm since 2000, Zeti will retire on April 30, and her successor has not been announced by the Government.

The biggest concern, according to the analysts, is not the monetary policy but the succession at BNM.

“Concerns are growing that a political appointee could hurt the BNM’s credibility and independence,” said Chua Hak Bin, economist at Bank of America Merrill Lynch.

Chua also said that the “widely tipped” deputy governor Muhammad Ibrahim is the person Zeti sees as a capable successor.

The credibility Zeti has lend to the central bank was crucial at a time when Prime Minister Najib Abdul Razak has faced urgings to resign over a financial scandal at state-owned 1MDB and deposits made into his personal bank account, said economists.

Last year, the Tinggit was Asia’s worst performing currency, losing 18.5% against the dollar. This year, the Ringgit has strengthened 4.0%.

Inflation is also cautioned to be higher this year, said the central back, compared to 2015. The consumer price index increased 3.5% in January year-on-year, the biggest rise since March 2014.